Apart from placing upward pressure on the yields in these markets, short-term rates may also respond, higher.
Manufacturing is not the only supply sector battling a strong currency. Mining is being crippled by a similar problem.
The current account deficit is above the 3% benchmark, a high-water mark generally considered to flag pending currency weakness to restore a balance between exports and imports.
Interestingly, the forecast for December may be little changed from the previous month, around 3.7%, bringing the average for 2005 to less than 4.0%, a highly respectable figure.
Another issue likely to resurface is the matter of 'a more competitive exchange rate', deciphered as code for the rand to weaken. Moral suasion such as this may be good for export-biased manufacturers, but will hardly be considered good for observers of inflation, or long-term interest rate markets.
Welfare and dependency grants, personal income tax relief, and cuts in those costs which would make housing more affordable for middle and low income earners are likely to buoy consumption expenditure, and manufacturing.
Manufacturing will be under pressure because of currency strength. It will hold the sector back and (keep) growth from reaching its potential level.
While an environment in which the rand remains strong is always appropriate for something more creative, the National Treasury is unlikely to deviate from its consistent path of removing exchange controls gradually.
Copyright © 2024 Electric Goat Media. All Rights Reserved.